How Technology Can Revolutionize Indonesia’s Insurance Sector

The insurance industry in Indonesia presents great prospects before global investors, with its low insurance penetration rate, growing middle class, and advancements in technology.

The development of Indonesia’s digital economy is also contributing to the rise of financial literacy and the creation of new distribution channels to reach the country’s rapidly rising consumer class.

In this article, we’ll discuss in detail how investing in Indonesia’s insurtech sector can be a lucrative opportunity for foreign investors.

Current Landscape of Insurance Industry in Indonesia

Indonesia presents a sizable opportunity in the Insurance industry due to its low insurance penetration rate, which ran at around 2.77% in 2018.

The nation has a mandated health insurance program known as BPJS (with 222.9 million registrants) that covers basic care in public healthcare facilities such as orthodontics, infertility treatments, and drug rehabilitation.

Contrastingly, many Indonesians, particularly those who are unbanked, see formal insurance plans as high-end investments aimed at the upper-middle class. According to the Indonesian financial authorities(OJK), overall insurance literacy in the country is still poor, at only 15.8%.

However, the COVID-19 pandemic has led to a surge in demand for insurance products. While some businesses were badly impacted by the pandemic, health-related businesses, including insurance, have witnessed a boom in demand as people became more aware of the significance of health insurance.

How Digital Integration Can Boost Investment in Indonesia’s Insurtech Market

Complicated registration, ineffective claims processing, and high premiums are the three greatest problems for Indonesians considering purchasing insurance coverage, all of which are now effectively addressed by tech-driven startups.

Indonesia insurtech startups use their platforms to give quick access to insurance coverage, eliminating the need for individuals to go via brokers or fill out lengthy papers in order to be protected.

The technology-insurance relationship is getting more prominent in Indonesia, as an insurtech startup called PasarPolis claims to have experienced significant growth in the last two years, with monthly policy sales increasing more than 80-fold. PasarPolis then raised USD 54 million in a Series B fundraising round in early September 2020.

Furthermore, the underlying vast potential of the Indonesian insurtech sector has attracted the attention of global businesses looking for a piece of this market. OneConnect, a subsidiary of Ping An Group, a Chinese insurance conglomerate, is leveraging technology to augment the capabilities of insurance agents in the country.

Furthermore, bancassurance, a partnership between an insurance company and a bank, has grown at an alarming rate in recent years and is dominated by a few prominent competitors in the market.

Regulatory Reform in Indonesia Insurance Industry

Foreign ownership restrictions for non-publicly traded insurance businesses were changed in January 2020. Unless the firm had a domestic initial public offering, foreign ownership was limited to 80%, and domestic partners were required to bear at least 20% of any increase in paid-up capital under 2018 laws.

However, under the new laws, foreign companies that have previously exceeded the 80% ownership restriction are now allowed to expand capital in proportion to their current ownership percentage, up to 85%. According to the OJK, foreign ownership is over 80% in six general insurance joint ventures and 12 life insurance joint ventures.

To put it simply, the law just legalizes the status quo, but it remains to be seen whether domestic insurance partners can be persuaded to supply the necessary capital for joint ventures to expand through capital infusion.

Tapping into Indonesia’s Insurtech Market with InCorp

It is indeed lucrative for foreign investors to tap into Indonesia’s insurance industry, but carrying it alone can be tedious and prone to pitfalls. However, InCorp Indonesia (an Ascentium Company) provides you with a seamless company registration experience. Our consultants can further assist you with the acquisition of business licenses with the least delay.

Moreover, if you want to analyze sectors and know more than what the stats say before investing in Indonesia, InCorp’s market research and due diligence team can assist you to review your possible investments.